A Bulletin of Socialist Economic Analysis published by Ken Livingstone
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Tuesday, 18 March 2014

That Tory recovery in perspective

By Michael Burke

This week George Osborne will announce his latest Budget. The specific
measures in this Budget were not published at the time of writing. But it is a
fairly safe assumption that he will boast that the economy is on track, and that
there is a recovery. This is simply an exercise in redefinition.

The economy grew by just 1.9% in 2013. This is following a period of
historically slow growth, the deepest recession in living memory and the weakest
recovery on record. Yet many commentators and not just explicit supporters of
austerity seem to believe this means we are automatically on track for a genuine
recovery with all that means for growing jobs, rising real pay and improving
living standards.

Unfortunately both the celebrations and the optimism are misplaced. Of course
this does not mean that the economy will never grow again. It is even possible
that growth will be a little better in 2014 than it was in 2013. But after most
recessions the economic rebound is usually fairly strong. After a very steep
recession the recovery should be very strong. That is not the case currently.

Annual growth in GDP of just 1.9% in 2013 is the best since 2007. But that is
really a measure of the crisis of the economy and how badly policy has failed.

Prior to the current crisis, in the 20 years to 2008 the average annual
growth rate of GDP was a little under 3%. In the same 20 year period from 1988
to 2008 only 3 years have seen worse growth for the British economy than last
year’s 1.9% and all of those were associated with the recession under the Tories
in the early 1990s (the ERM crisis).

So, a growth rate associated in the past with crisis is now redefined as
recovery and heralded as success. Crisis is redefined as success; stagnation is
now growth.

Current growth rates also remain well below the previous trend. That means
the gap between where we are and where could or should have been is actually
getting wider. It would take many years of sustained growth above that 3% rate
in order to close the gap between the actual level of GDP and its previous
trend. No major forecasting body suggests anything like that is going to happen
over the next few years. The chart below shows the trend growth of Britain’s GDP
in from 1988 to 2008.

Fig.1 Trend GDP Growth From 1998

This growing gap matters because it effectively means living standards cannot
significantly recover without altering the current structure of the economy.
Instead, the misery of the economic slump will become embedded as a long-term
feature of the economy.

In all probability living standards for most people will not rise for several
years and for many they will fall further unless growth accelerates
significantly. Austerity policies have the effect of ensuring that the lion’s
share of any recovery goes to a minority of the population.

Most Budget coverage is a deluge of minutiae about minor changes to the tax
system. But the most important fact is this: talk of recovery is entirely
misplaced. For the overwhelming majority of the population austerity policies
mean that living standards will continue to decline.